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Wednesday, February 18, 2009

EXTENDED NOL CARRYBACK PERIOD IN RECOVERY ACT DISAPPOINTS MANY

One of the few “business friendly” tax provisions in the recently enacted Recovery Act is a temporary extension of the net operating loss (NOL) carryback period to 5 years from the usual 2. The purported benefit is to get cash into the hands of businesses who are presently suffering losses, by allowing them to carryback current losses to those earlier years and obtain income tax refunds. The businesses can then use the cash flow to remain in business and stem the flow of layoffs.

The big problem with the new provision is that it only applies to entities with gross receipts of under $15 million. While $15 million is a lot of money, in the grand scheme of things this eliminates a great number of middle and large business enterprises from sharing in the benefits of the new provision. I know of several disappointed companies that had thought they were going to receive the benefit of the new provision, only to find out that they exceeded the threshold and thus were locked out from its benefits. At least one of those companies is now going to have to significantly cut back its work force – something it did not want to do and something the Recovery Act was supposed to help prevent.

Once upon a time, a tax break for one, was a tax break for all. In today’s world, it is difficult to find any favorable tax provision that is not phased out or made inapplicable to taxpayers once certain income, asset, or gross receipts levels are exceeded. One has to question the wisdom of such populist policies which deny benefits to the country’s significant employers, especially in regard to the Recovery Act whose avowed purpose is to maximize jobs.

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